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Should Agents Care About ‘Operation Twist’?

by admin

The Fed want to do the Twist, but will agents get to partake in that dance?

The Federal Reserve announced earlier today that it would be extending its Operation Twist program through the end of the year to stimulate financial markets.

Though it sounds like it came from the mind of Lewis Carroll, the Twist program, which aims to keep interest rates low, is one of the Fed’s major post-crisis stimulus programs, but from our perspective, one big question stands out – will it have any impact on agents?

Operation Twist is pretty straightforward. It involves the selling of short-term securities and buying of long-term securities to put downward pressure on rates, which the Fed said in its meeting today it intends to keep at historically-low levels through 2014. Low rates can get consumers great mortgage arrangements, so Twist should spur homebuying, right? Well, not necessarily.

Chicago Agent put that question to Jed Kolko, Trulia’s chief economist, during an exclusive conference call for the site’s latest survey, and Kolko said that while certain segments of housing will be potentially impacted by Twist, it should not concern buyers or agents. His reasoning:

  • Operation Twist affects one thing – interest rates; therefore, for current homeowners looking to refinance their mortgages, it’s a great policy, as refinancing is based solely on the current levels for interest rates.
  • Prospective homebuyers, though, need to consider many other things than just interest rates when debating homeownership. From finances to schools to property taxes, there are many nuances in the buying/selling process that interest rates do not impact.
  • Low rates, ironically enough, are not indicative of a strong housing market; rather, rates will rise as the market improves, because strong demand for homes will push prices, and the accompanying mortgage rates, beyond their historically-low levels.
Now the “Funding for Lending” program, which the Fed flirted with in its same meeting yesterday, would involve the Fed lending money to banks at criminally-low levels on the condition that the banks in turn lend the money for mortgages and consumer-driven activities, but the policy is only at the conceptual stage right now.

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